Demand Effects in the FX Forward Market: Micro Evidence from Banks' Dollar Hedging

• 成果类型: Article
• 署名作者: Abbassi, Puriya; Brauning, Falk
• 署名单位: Deutsche Bundesbank; Federal Reserve System - USA; Federal Reserve Bank - Boston
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhaa123
• 发表日期: 2021
• 页码: 4177
• 关键词: DEVIATIONS; liquidity

摘要

Using contract-level supervisory data, we show that dollar forward sales by non-U.S. banks that are initiated at the end of a quarter and mature shortly after it concludes trade at higher prices and higher volumes. These effects are driven by banks with large net on-balance-sheet dollar assets that they can hedge around quarter ends by selling dollars forward (increasing off-balance-sheet short positions), which suggests regulatory arbitrage to reduce capital charges for open foreign exchange (FX) exposure. Our results indicate that demand effects related to banks' management of FX exposure are an important driver of deviations from covered interest rate parity.